KIEV/BRUSSELS - Ukraine said on Saturday Russian tanks had flattened a small border town and pro-Russian rebels had made fresh gains in its east, as EU leaders signalled they were ready to prepare more sanctions on Moscow over the crisis.

Ukrainian President Petro Poroshenko, speaking ahead of an EU summit in Brussels, said he was still holding out hope for a political solution but told journalists there were now thousands of foreign troops and hundreds of foreign tanks in his country.

Russia has repeatedly dismissed accusations from Kiev and Western powers that it has sent soldiers across the border into its neighbour, or supported pro-Russian rebels fighting a five-month-old separatist war in Ukraine's east.